Google Revamps Pay-By-Phone Service to Add More Cards

Google Inc. (GOOG) unveiled changes to its mobile-payment system Wednesday in a bid to get the upper hand in the battle for control of consumers' "digital wallets."

The revamp allows a consumer to load any existing credit- or debit-card number into a software application, which then can be used to make purchases using smartphones equipped with a special computer chip. The changes aim to eliminate barriers to enrolling in the service.

Google Wallet, despite being one of the first mobile-payment services to become commercially available, has seen limited adoption because of competition and technical hurdles, such requiring partnerships with banks.

"Users can now link any of their credit and debit cards to their [Google] Wallet," Robin Dua, head of product management for the service, said in an interview. "This was not the case when we first launched."

When Google Wallet became available in the fall, consumers could make payments using a Google-branded prepaid account that was preloaded into the app or load the app with certain MasterCard-branded credit cards issued by Citigroup Inc. (C), its first and only bank partner to date.

Google's initial plan was to work with individual banks, which then would help enroll their customers in the service; however, the company realized this method could take too long.

"This was an approach that from a negotiation and integration standpoint could take several months to a year," Dua said. "Given how many banks there are in the U.S., this approach could literally take a lifetime to work through."

As part of the makeover, consumers themselves can load any card into a cloud-based software program without intervention from their bank. Their card accounts are then linked to a separate MasterCard-branded virtual account housed within the Google Wallet. When a customer makes a transaction, money is transferred using that virtual account, though their underlying credit or debit card ultimately funds the purchase.

"Issuers no longer have to do that heavy integration work," Dua said, adding that Google will continue to work directly with banks that want to be visually represented within the software application.

The strategy could help Google gain an edge over competing mobile-payments systems, namely PayPal and Isis, a service developed by a joint venture of AT&T Inc. (T), T-Mobile and Verizon Wireless, said Richard Crone, chief executive of payments-consulting firm Crone Consulting LLC.

"It's a broad-side shot at both Isis and PayPal," Crone said.

PayPal, traditionally a service for online merchants, this year began rolling out a system that lets customers make purchases at participating brick-and-mortar retailers by entering an identification number at the point of sale.

Earlier this year, J.P. Morgan Chase & Co. (JPM), Capital One Financial Corp. (COF) and Barclays PLC (BARC.LN) said they would allow their customers to participate in tests of Isis, which is being trialed in Austin, Texas, and Salt Lake City.

Visa, MasterCard and American Express are each promoting their own online- and phone-based payment systems.

Research firm Gartner Inc. in May said it estimated the value of mobile-payment transactions would reach $617 billion worldwide by 2016, up from $105.9 billion in 2011.

Google's changes also allow a consumer to remotely disable their Google Wallet account online if their phone is lost or stolen.

Google Wallet is compatible with cards from Visa, MasterCard, American Express (AXP) and Discover Financial Services (DFS). It relies on a technology called near-field communication, or NFC, which allows for the transfer of cardholder information from a consumer's phone to a retailer's payment terminal.

For the system to work, both a consumer's phone and the merchant's terminal must contain the NFC technology.

There are currently six smartphones on which Google Wallet is available. It can be used at any merchant whose terminals are equipped with MasterCard's PayPass contactless-payment technology, of which there are more than 200,000 U.S. locations.